Budget Be Damned

[sailorboy1]

I think the market is UNDERvalued. But of course you need to know which "market" you are talking about.

[dannc]

Originally Posted by a64pilot

...
I’m only trying to say, don’t base upcoming retirement plans based on how the Stock Market has performed the last few years, or even decade...

Yes, one should have a LONG view measuring many decades or longer.

I used this tool to play what ifs for retirement, https://www.firecalc.com/.

...FIRECalc shows you the results of every starting point, since 1871. You can get a sense of just how safe or risky your retirement plan is, based on how it would have withstood every market condition we have ever faced...

You can use the tool a bunch of different ways but I just used the market data from 1871 since there was some pretty bad economic times back then, and of course, that data would include 1929.

I pushed the default start information they have listed as an example:

FIRECalc looked at the 119 possible 30 year periods in the available data, starting with a portfolio of $750,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 119 cycles. The lowest and highest portfolio balance at the end of your retirement was $-300,739 to $4,259,606, with an average at the end of $1,400,562. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 6 cycles failed, for a success rate of 95.0%.

For the number periods, I used actuarial tables to guess how long I would live from a given age, and then used different spending amounts to see if we would have money left over by the time we died.

From memory, if we spent less than 3-4% of the investments we would never run out of money. As we got up to 8-10% spending of the investments then there were increased odds of running out of money. Not great odds by any means but one does not want to run out of money so it make's one think.

Tis an interesting tool to play what if's and backs up what I have been reading about retirement spending.

Later,
Dan

[daletournier]

Originally Posted by letsgetsailing3

What are you basing your analysis on? Nothing?

The stock market is about investing. It's about higher profits caused by lower taxes. It's about earnings. It's about the economy. It's about optimism for the future. By all of these measures, the market isn't overpriced. It's absolutely not where the housing market was in 2005.

Most people should be investing in markets based on age and risk tolerance, not by their market perceptions. If you're nervous, it wouldn't hurt to take something off the table, but the better strategy is to go with a bigger picture long-term approach. The herd mentality is often wrong, but the herd does control the market, and December's drop is an indicator.

In your situation, you can afford some risk, as you'll be fine regardless based on your diverse and independent income streams.

Market caps are so far divorced from the underlying companies that its a complete joke, obviously the most outrageous example is Tesla. The markets of today are based purely on speculation, buy something today and sell it tommorow to someone else for a higher price.

There are a number of metrics to measure value the Shiller P/E ratio being one.

You mention tax cuts... there's alot of evidence out there that shown this resulted in large amounts of companies buying back their own stock distorting the markets even more.

[letsgetsailing3]

Originally Posted by daletournier

Market caps are so far divorced from the underlying companies that its a complete joke, obviously the most outrageous example is Tesla. The markets of today are based purely on speculation, buy something today and sell it tommorow to someone else for a higher price.

There are a number of metrics to measure value the Shiller P/E ratio being one.

You mention tax cuts... there's alot of evidence out there that shown this resulted in large amounts of companies buying back their own stock distorting the markets even more.

There are lots of ways to measure value, but Tesla is certainly not representative of the overall market, and along with some other fairly large companies, I'd consider it to be speculative in nature.

The reason I mentioned tax cuts is because lowering corporate taxes gave companies a one-time boost in profitability, and it should come as no surprise that the value of the underlying stock prices might get a boost from that.

But when you make a comment like "Market caps are so far divorced from the underlying companies that its a complete joke", it makes me wonder what you're looking at. I look at P/E values all the time, and for a lot of stocks, they don't seem unreasonable.

The Shiller PE ratio is an interesting data point, and worth paying attention to as an overall indicator. But my understanding is that it's based on prior earnings, where most valuations are forward-looking. Also, it stands to reason to me that given the changes in the tax code regarding 401Ks, I wouldn't be surprised at some resulting increase in stock valuations.

But hey, everyone has to pick their own investments, and everybody's mileage varies.

[Checkswrecks]

Originally Posted by sailorboy1

I think the market is UNDERvalued. But of course you need to know which "market" you are talking about.

+1
Truer words never spoken.

Some market is ALWAYS undervalued, it's just a matter of which one to be in. There have been a lot of people who either made a fortune or lost their life savings, or both, in tulips, beanie babies, Asian real estate, the initial run on Bitcoin, dot-com companies, etc.

There is an ebb and flow to everything. I've been trading for more than a half century and do think there is more to make in the current run but that it is near a significant top and painful period to follow. Two references to support the idea that equities are over-valued and one on a related note:

[daletournier]

Originally Posted by Checkswrecks

+1
Truer words never spoken.

Some market is ALWAYS undervalued, it's just a matter of which one to be in. There have been a lot of people who either made a fortune or lost their life savings, or both, in tulips, beanie babies, Asian real estate, the initial run on Bitcoin, dot-com companies, etc.

There is an ebb and flow to everything. I've been trading for more than a half century and do think there is more to make in the current run but that it is near a significant top and painful period to follow. Two references to support the idea that equities are over-valued and one on a related note:

I also read Lance Roberts.

Interested why you think theres further to run? not saying your wrong, just interested in your view.

The Feds becoming more dovish and trumps pushing for an interest rate cut and even more QE, obviously if these two things happen it would juice the market more.

[Checkswrecks]

Originally Posted by a64pilot

...I’m only trying to say, don’t base upcoming retirement plans based on how the Stock Market has performed the last few years, or even decade.
Myself I have 401K money too, a Military Retirement, and upcoming SS, plus the Wife’s small teacher Retirement and her SS.
In theory we could live off of one of any of mine and two of hers.
...
I’m only cautioning you to have a reserve, before you tell the boss to take this job and shove it . Even if your the boss.

We're saying close to the same thing here. My point was that those banking on equities to keep performing and inflation to stay this low are in for a rude shock. As SB wrote, there will always be something in an up market, it will just shift to something other than equities. For example, oil has done well since the beginning of the year. I'm not advocating short term market timing, but do believe periodic re-balancing is needed to avoid how downturns and inflation ruin buy & hold accounts.

And fwiw, I'm mid-60s not 30s. Rather than stay in my daughter's dirt floor basement I'll somehow manage to scrape by with a Federal pension, SS, TSP (Federal version of 401k), contract work, and some other income.

[Checkswrecks]

Originally Posted by daletournier

I also read Lance Roberts.

Interested why you think theres further to run? not saying your wrong, just interested in your view.

The Feds becoming more dovish and trumps pushing for an interest rate cut and even more QE, obviously if these two things happen it would juice the market more.

You left out China. A probable trade deal there would juice the China equities and ours both in at least the short term.

The direct answer is that for my trading account I'm a technical trader and have both numbers and patterns that have targets which should peak somewhere either at the beginning or end of this summer, at roughly 100 or 300 S&P points higher.

[MV Wanderlust]

Originally Posted by sailorboy1

So go forth and cruise before you are old. It's your money so be sure YOU get to spend some of it instead of leaving to your "heirs".

Great post, SB! Great post for us planners and soon-to-be-in-your-wakers.

[daletournier]

Originally Posted by letsgetsailing3

There are lots of ways to measure value, but Tesla is certainly not representative of the overall market, and along with some other fairly large companies, I'd consider it to be speculative in nature.

The reason I mentioned tax cuts is because lowering corporate taxes gave companies a one-time boost in profitability, and it should come as no surprise that the value of the underlying stock prices might get a boost from that.

But when you make a comment like "Market caps are so far divorced from the underlying companies that its a complete joke", it makes me wonder what you're looking at. I look at P/E values all the time, and for a lot of stocks, they don't seem unreasonable.

The Shiller PE ratio is an interesting data point, and worth paying attention to as an overall indicator. But my understanding is that it's based on prior earnings, where most valuations are forward-looking. Also, it stands to reason to me that given the changes in the tax code regarding 401Ks, I wouldn't be surprised at some resulting increase in stock valuations.

But hey, everyone has to pick their own investments, and everybody's mileage varies.

There's guys like Seigel that have been critics of Shiller for a long time but as a noble prize winning economist and someone that warned of 2008 quite early he does have some runs on the board, I wouldn't just dismiss is opinions.

"Shiller remains convinced that stock valuations are “just too high at the present day.” Even if one uses other metrics to substitute for earnings, such as book value, cash flow and others, he noted, the outcome is the same".

[letsgetsailing3]

Originally Posted by daletournier

There's guys like Seigel that have been critics of Shiller for a long time but as a noble prize winning economist and someone that warned of 2008 quite early he does have some runs on the board, I wouldn't just dismiss is opinions.

"Shiller remains convinced that stock valuations are “just too high at the present day.” Even if one uses other metrics to substitute for earnings, such as book value, cash flow and others, he noted, the outcome is the same".

Was pretty easy to see the housing market bubble in 2008. People were taking out loans on their houses to buy cars and other stuff.

But it should be noted that people who didn't panic and abandon their newly-purchased houses probably recovered for the most part.

[sailorboy1]

Originally Posted by letsgetsailing3

Was pretty easy to see the housing market bubble in 2008.

People in my neighborhood were buying $250k house on a $35k salary

[daletournier]

Originally Posted by letsgetsailing3

Was pretty easy to see the housing market bubble in 2008. People were taking out loans on their houses to buy cars and other stuff.

But it should be noted that people who didn't panic and abandon their newly-purchased houses probably recovered for the most part.

Abit of a drift but that's exactly what's been happening in Australia for years, lines of credit attached to house equity to buy what ever you want, cars, jet skis holidays or a deposit for another property (or full payment for another property).

I have a couple of 100k sitting there in the form of credit that I can spend on anything without getting permission.... it's crazy.

BTW I agree easy to see BUT most, including Bernanke didn't.

[daletournier]

Originally Posted by sailorboy1

People in my neighborhood were buying $250k house on a $35k salary

The crazy thing is that 7:1 house price vs household income is not that outrageous in Australia, and most don't believe there's an issue.

[daletournier]

Continuing with my thread drift:

Sydney’s median multiple is 11.7, compared with Melbourne’s 9.7, Adelaide’s 6.9, Brisbane’s 6.3 and Perth’s 5.7.

These are income/house price ratios of the Australian capital cities, and this is after the biggest real estate correction in 35 years!

Anyway, moving on...